Pound Foolish: Money Gurus Will Not Solve All Your Money Problems

Every year many books on money and finance are published. Only few gain publicity. When you hear or see an author interviewed on radio and TV or read reviews in national newspapers or magazines, think about the terrific job done by the author’s and the publisher’s PR agents.

The book Pound Foolish by freelance writer Helaine Olen is one such example. Ms. Olen was interviewed on The Daily Show, CBS News, C-SPAN, and NPR. The book was reviewed in The Economist, Washington Post, New York Times, and US News & World Report. If you know anything about media placements, you must realize that’s a huge achievement by the PR firms. For the amount of publicity the author and the book received, however, the book itself came as a big disappointment.

Ms. Olen has a problem with stagnant wages and income inequality. She blames money gurus on TV and radio for their failure to address stagnant wages and income inequality. She exposes “the dark side” of Suze Orman, David Bach, Dave Ramsey, among others in the “self-help movement.” She shows these money gurus are more about marketing themselves, their merchandise and their training programs than offering useful advice for the middle class.

The author summarized the book the best in her introduction:

“Pound Foolish will tell the story of how we were sold on a dream — a dream that personal finance had almost magical abilities, that it could compensate for stagnant salaries, income inequality, and a society that offered a shorter and thinner safety net with each passing year.”

That, I must say, is a huge straw man argument.

I’m not a fan of Suze Orman, David Bach, or Dave Ramsey. I can’t believe that I’m coming to their defense, but who in their right mind are expecting Orman, Bach, or Ramsey to solve the problem of stagnant wages, income inequality, or weakened social safety net?

Suze Orman, David Bach, and Dave Ramsey are great communicators and marketers. They are able to package age-old ideas — live below your means, get out of debt — into something that resonate with their audience. They make good money off their entrepreneurial endeavor. The test for whether they are a net positive or a net negative to their followers/customers would be whether someone would be better off or worse off if he or she follows everything the guru says.

If a middle class person takes to heart everything Suze wrote in her latest book The Money Class and implements them to a T, would this person’s financial situation improve or deteriorate? If someone with a lot of debt spends $99 on attending Dave Ramsey’s Financial Peace University (FPU), would this person’s financial situation improve or deteriorate?

It’s going to improve. One can do better than just following everything in The Money Class or the FPU but it’s still going to improve. It will be worth the money paid for The Money Class or FPU.

So what’s the problem?

The book picked on some easy targets but left other advice givers alone: Jane Bryant Quinn, Liz Weston, Clark Howard. They don’t do anything about stagnant wages or weak social safety net either.

I place Pound Foolish in the same vein as Strapped: Why America’s 20- and 30-Somethings Can’t Get Ahead by Tamara Draut. It’s worse than Strapped because it’s knocking down things that actually help people. The implications are pretty bad: your 401k plan is rigged with high fees, so don’t contribute; saving 10% of your paycheck isn’t going to make you rich anyway because David Bach used rosy math, so don’t bother; Dave Ramsey is just selling his $99 FPU course, so don’t worry about the high balances on those credit cards.

Money gurus on TV or radio will not double your salary or strengthen the social safety net. Nobody expects them to. Knocking down money gurus won’t double your salary or strengthen the social safety net either.

My favorite financial writer Roger Lowenstein said it much better in his review on Bloomberg BusinessWeek. Understandably Ms. Olen didn’t link to that review on her publicity page.

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Comments

I have a problem with anyone that blames all of our problems on other people. There are certainly external forces at play in our lives, but we are ultimately responsible for our own decisions. And if you’re going to blame others when times are bad, are you ready to give them all the credit when you’re doing well? Because you can’t have it both ways. There’s a role for big-picture economic policy and a role for personal finance. Both are important, but neither one dictates the other.

The problem is that a lot of people want the quick fixes. Going to these conferences and just reading the books are only the beginning. Those people are marketers and though what they say is true its up to you to actually do all the work. People are so quick to blame others for there shortcomings.

“The test for whether they are a net positive or a net negative to their followers/customers would be whether someone would be better off or worse off if he or she follows everything the guru says.”

That test is too low a threshold.

Suppose somebody invests in a high fee mutual fund that only returns 5% when a comparable index fund returns 10%. Are they likely to better off investing in the high fee mutual fund than if they didn’t invest at all. Sure. But the fund is a net positive only in the most limited sense.

There has to be a control component to your test that factors in opportunity cost.

The book is right in that in pokes at the hypocrisy of some of the gurus. And as we all know, there are tons of folks that really don’t have folks best interest at heart. But I kept waiting for the chapter that explained what the true solution to success was. How to overcome all of the obstacles and listen to what truly made sense if you didn’t know much and wanted to give your family the best chance of success.

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